Geographic versus industry diversification: constraints matter
This research addresses whether geographic diversification provides benefits over industry diversification. In the absence of constraints, no empirical evidence is found to support the argument that country diversification is superior. With short-selling constraints, however, the geographic tangency portfolio is not attainable by industry portfolios. Results with upper and lower constraints on portfolio weights as well as an out-of-sample analysis show that geographic diversification almost consistently outperforms industry portfolios, although we cannot establish statistical significance. JEL Classification: G11, G15
|Date of creation:||Jan 2005|
|Contact details of provider:|| Postal: 60640 Frankfurt am Main, Germany|
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carrieri, Francesca & Errunza, Vihang & Sarkissian, Sergei, 2006. "The Dynamics of Geographic versus Sectoral Diversification: Is There a Link to the Real Economy?," Working Papers 06-4, University of Pennsylvania, Wharton School, Weiss Center.
- Brooks, Robin & Del Negro, Marco, 2004.
"The rise in comovement across national stock markets: market integration or IT bubble?,"
Journal of Empirical Finance,
Elsevier, vol. 11(5), pages 659-680, December.
- Robin Brooks & Marco Del Negro, 2002. "The rise in comovement across national stock markets: market integration or IT bubble?," FRB Atlanta Working Paper 2002-17, Federal Reserve Bank of Atlanta.
- Ravi Jagannathan & Tongshu Ma, 2003. "Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps," Journal of Finance, American Finance Association, vol. 58(4), pages 1651-1684, 08.
- Ravi Jagannathan & Tongshu Ma, 2002. "Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps," NBER Working Papers 8922, National Bureau of Economic Research, Inc.
- Huberman, Gur & Kandel, Shmuel, 1987. " Mean-Variance Spanning," Journal of Finance, American Finance Association, vol. 42(4), pages 873-888, September.
- Kandel, Shmuel & McCulloch, Robert & Stambaugh, Robert F, 1995. "Bayesian Inference and Portfolio Efficiency," Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 1-53.
- Kandel, S. & McCulloch, R. & Stambaugh, R.F., 1991. "Bayesian Inference and Portfolio Efficiency," Weiss Center Working Papers 8-91, Wharton School - Weiss Center for International Financial Research.
- Shmuel Kandel & Robert McCulloch & Robert F. Stambaugh, 1993. "Bayesian Inference and Portfolio Efficiency," NBER Technical Working Papers 0134, National Bureau of Economic Research, Inc.
- Breen, William & Glosten, Lawrence R & Jagannathan, Ravi, 1989. " Economic Significance of Predictable Variations in Stock Index Returns," Journal of Finance, American Finance Association, vol. 44(5), pages 1177-1189, December.
- Beckers, Stan & Grinold, Richard & Rudd, Andrew & Stefek, Dan, 1992. "The relative importance of common factors across the European equity markets," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 75-95, February.
- Dusan Isakov & Frédéric Sonney, 2004. "Are Practitioners Right? On the Relative Importance of Industrial Factors in International Stock Returns," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(III), pages 355-379, September.
- Dušan Isakov & Frédéric Sonney, 2003. "Are practitioners right? On the relative importance of industrial factors in international stock returns," FAME Research Paper Series rp72, International Center for Financial Asset Management and Engineering.
- Wang, Zhenyu, 1998. "Efficiency loss and constraints on portfolio holdings," Journal of Financial Economics, Elsevier, vol. 48(3), pages 359-375, June.
- Basak, Gopal & Jagannathan, Ravi & Sun, Guoqiang, 2002. "A direct test for the mean variance efficiency of a portfolio," Journal of Economic Dynamics and Control, Elsevier, vol. 26(7-8), pages 1195-1215, July.
- Green, Richard C & Hollifield, Burton, 1992. " When Will Mean-Variance Efficient Portfolios Be Well Diversified?," Journal of Finance, American Finance Association, vol. 47(5), pages 1785-1809, December.
- Green, R.C. & Hollifield, B., 1990. "When Will Mean-Variance Efficient Portfolios Be Well Diversified?," GSIA Working Papers 1990-12, Carnegie Mellon University, Tepper School of Business.
- Griffin, John M. & Andrew Karolyi, G., 1998. "Another look at the role of the industrial structure of markets for international diversification strategies," Journal of Financial Economics, Elsevier, vol. 50(3), pages 351-373, December.
- John M. Griffin & G. Andrew Karolyi, "undated". "Another Look at the Role of the Industrial Structure of Markets for International Diversification Strategies," Research in Financial Economics 9608, Ohio State University.
- Roll, Richard, 1992. " Industrial Structure and the Comparative Behavior of International Stock Market Indices," Journal of Finance, American Finance Association, vol. 47(1), pages 3-41, March.
- Francesca Carrieri & Vihang Errunza & Sergei Sarkissian, 2004. "Industry Risk and Market Integration," Management Science, INFORMS, vol. 50(2), pages 207-221, February.
- Robin Brooks & Marco Del Negro, 2002. "International diversification strategies," FRB Atlanta Working Paper 2002-23, Federal Reserve Bank of Atlanta.
- Arshanapalli, Bala & Doukas, John & Lang, Larry H. P., 1997. "Common volatility in the industrial structure of global capital markets," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 189-209, April.
- Gabriele Galati & Kostas Tsatsaronis, 2001. "The impact of the euro on Europe's financial markets," BIS Working Papers 100, Bank for International Settlements.
- Mark Britten-Jones, 1999. "The Sampling Error in Estimates of Mean-Variance Efficient Portfolio Weights," Journal of Finance, American Finance Association, vol. 54(2), pages 655-671, 04.
- Robin Brooks & Marco Del Negro, 2002. "The Rise in Comovement Across National Stock Markets; Market Integration or Global Bubble?," IMF Working Papers 02/147, International Monetary Fund.
- Li, Kai & Sarkar, Asani & Wang, Zhenyu, 2003. "Diversification benefits of emerging markets subject to portfolio constraints," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 57-80, February.
- Eun, Cheol S & Resnick, Bruce G, 1988. " Exchange Rate Uncertainty, Forward Contracts, and International Portfolio Selection," Journal of Finance, American Finance Association, vol. 43(1), pages 197-215, March.
- Heston, Steven L. & Rouwenhorst, K. Geert, 1994. "Does industrial structure explain the benefits of international diversification?," Journal of Financial Economics, Elsevier, vol. 36(1), pages 3-27, August.
- Ferson, Wayne E & Harvey, Campbell R, 1993. "The Risk and Predictability of International Equity Returns," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 527-566. Full references (including those not matched with items on IDEAS)